FRC notes improvements in company reporting
The FRC notes positive changes in company reporting since the introduction of the strategic report in 2014.
Companies have improved their narrative reporting since the introduction of the strategic report in 2014, but there is still room for improving things further.
That is the view of the Financial Reporting Council (FRC) in its paper Clear & Concise: Developments in Narrative Reporting, which includes a study of UK listed companies’ reports.
The study noted that business model and strategy reporting provides useful insights into how a company is managed and that best practice in this area is evolving. It also highlights focus areas for improvement in the next reporting period, including:
- The application of materiality (not cluttering reports with relatively trivial information) and improving reporting of key performance indicators;
- Principal risks, for which the FRC said there is still too much “boilerplate” reporting rather than useful analysis; and
- Forward-looking information (as some companies already look further than 12 months ahead, there is no reason more could not do so, the FRC said).
The overriding objective of the strategic report, the FRC said, is to provide information for shareholders that will enable them to assess how the directors have performed their duty to promote the success of the company. It should reflect the directors’ view of the company and provide context for the related financial statements.
In meeting the needs of shareholders, the information in the annual report may also be of interest to other stakeholders. The annual report should not, however, be seen as a replacement for other forms of reporting addressed to other stakeholders.
Melanie McLaren, Executive Director of Codes and Standards at the FRC, said: "Our study found that many companies are improving how they communicate and making important information more accessible; but good practice is far from universal.
"We believe there is room to go further on the application of materiality so that irrelevant information does not get in the way of the relevant; continuing to improve the linkage of related information to communicate cohesively; and including more forward-looking analysis to promote longer-term sustainability.
"Making change requires leadership from boards and investors with support from auditors, advisors and regulators."
The FRC will use the study results to inform the update of its strategic report guidance. It expects to update the guidance to take account of the UK's implementation of the EU's Non- Financial Reporting Directive that BIS will be consulting on.